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Setting Strategy and Measuring Performance

Using the Balanced Scorecard for Ranch Planning and Management:. Setting Strategy and Measuring Performance. Jack Davis, Area Management Specialist – SDSU CES Agustin Arzeno, Area Management Specialist – SDSU CES. What is it?.

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Setting Strategy and Measuring Performance

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  1. Using the Balanced Scorecard for Ranch Planning and Management: Setting Strategy and Measuring Performance Jack Davis, Area Management Specialist – SDSU CES Agustin Arzeno, Area Management Specialist – SDSU CES

  2. What is it? • A strategic management tool that provides ranch managers with a clear, concise picture of the health and progress of the business in reaching the ranch goals.

  3. Where Developed? • Harvard Business School • Dr. Robert Kaplan • Dr. David Norton • Utilized by industry • General Electric • Ford Motor Company • IBM • Walt Disney World

  4. What is it? • The BSC translates mission and strategy into objectives and measures, organized into four different perspectives: financial, customer, internal business process, and learning and growth. • The BSC provides a framework, a language, to communicate mission and strategy. • The four perspectives of the BSC permit a balance of ST and LT objectives, between desired outcomes and performance.

  5. Why Developed? • Financial Measures are no longer the only measure responsible for success of a company. • Others include • Customer Satisfaction • Better Internal Process • Learning and Growth • All of these should work together (in Balance) for the success of the company • All systems are part of a whole and every action taken affects the sum of the parts

  6. Financial Vision and Strategy Internal Business Process Customer Learning and Growth

  7. Ranch Wheel

  8. What is the Driving Factor? • The Vision • It gives you direction “I am here and I need to get to there, how do I do that?”

  9. The Vision “Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.” Jack Welch, former GE CEO

  10. The Vision • Statement of values and reasons that are the basis for business. • Envisioned future if goals are achieved. • Recognizes how the business serves the stakeholders. • It should guide the business through challenges and opportunities and provide a framework on which to base decisions. • 3 steps in creating the VISION: a) Scenarios for your Industry b) Place business in context c) Develop strategies to adapt

  11. The Vision • “ To pursue excellence and growth in sustainable agriculture, thereby providing for diversification, succession, and a continuity improving the standard of living for all shareholders in the business.” • “To have a farm business that is growing, is financially profitable, and is environmentally sustainable, while enabling us to maintain our lifestyle and enjoy time with our children and friends and continue our involvement in the community.” • “To grow the family farm business by profitably marketing quality products to ensure that the future generation has a viable farming business.” Nicola M. Shadbolt, Massey University, NZ

  12. The Strategies • Set after Vision is developed • Limited to those that directly correlate with vision statement. • Action plan that will close “gap” between vision and reality. • Strategies may involve major changes or just fine-tune existing ones.

  13. What is involved in your Ranch? • Livestock Resources • Natural Resources • Financial • Human • Ag commodities/production Perspectives

  14. What is a Perspective? • The capacity to view things in their true relation or relative importance. • Go back to the Ranch Wheel and look at the spokes of the wheel. These are your perspectives. • View the business from each perspective. • Develop strategies. • Evaluate outcomes relative to each perspective.

  15. Perspectives have to be Measured! • Need to set goals under each perspective • The BSC forces goals to be linked to the vision and actions to be linked to goals • Ask yourself 3 questions • What are the most important measures of performance? • How should these measures relate to one another? • What measurements truly predict long-term success?

  16. What else to consider with your perspectives? • Links between goals of different perspectives should be examined. • Leading (drivers) and Lagging (outcomes) indicators should be included. • Needs to be measurable, relevant and easy to measure. • 3 to 8 goals per perspective. Easy indicator of balance.

  17. Leading or Lagging? • Lagging Indicators have already happened. • Measure past performance. • Things you cannot change. • Leading Indicators are in the future. • Future performance • Drivers

  18. Weaning Weight Potential cattle buyer inquiry ROA Lagging Leading Lagging Is it leading or lagging?

  19. Ranch Wheel

  20. Lifestyle • The 5 perspectives all build to this one. • Key indicators • Stress • Sense of security • Healthy, happy and content.

  21. RANCH LIFESTYLE

  22. Financial • What terms are most encompassing? • ROA • It measures how efficient the production system is at taking invested dollars, regardless of sources and turning them into income. • Others? • Breakeven • Free Cash Flow • Record Keeping

  23. FINANCIAL

  24. The Customer • Who is your customer? • Are they satisfied with your product? • Do you have repeat customers? • Does the same person buy your calves year after year? • Backgrounder/Feeder • Packing plant (get data back)

  25. CUSTOMER

  26. Ag Commodities/Production • Need to focus on skills, competencies and technology of the business and its ability to meet the needs of the customer. • Use standardized terms • Have a benchmark as a starting point • Pounds weaned per cow exposed • Preg rate • Actual weaning weight • Record Keeping

  27. AG COMMODITIES/PRODUCTION

  28. Natural Resources • Why is it important? • Impacts number of animals able to graze. • If conditions improving then you are matching resources. • How does this impact other perspectives? • Pounds of product produced

  29. NATURAL RESOURCES

  30. Learning and Growth • Why is it important? • Gives you base to grow from. • Knowledge is power. • Knowing new ways of producing and/or how to generate more business • Knowledge impacts all the other perspectives. • What is available • Extension sponsored programs. • Websites • Popular press • Other

  31. LEARNING and GROWTH

  32. Summary The process to build a BSC, includes: 1) Establish the vision for the future of the business and strategies for reaching that vision. 2) Identify “perspectives” critical to your business. 3) Identify measures for tracking progress and/or success within each perspective (leading/lagging) 4) Create action plans to achieve goals. 5) Evaluate performance and determine if goals have been met and if progress in reaching the vision has been made.

  33. Summary “Think of the BSC as the dials and indicators in an airplane cockpit. To navigate and fly the plane, pilots need information on fuel, airspeed, altitude, bearing, destination, and other indicators. Reliance on one instrument can be fatal. Similarly, the complexity of managing a business today requires that managers be able to view performance in several areas at once.” Drs. Robert Kaplan and David Norton

  34. Ranch Wheel

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